Monsanto Co. (MON), the world’s largest seed company worth $64 billion, recently explored a takeover of $34 billion Swiss rival Syngenta AG (SYNN) in a transaction that would have allowed the U.S. firm to move its tax location to Switzerland.
The deal, which is now defunct according to people familiar with the matter, is another sign of how U.S. firms in many sectors are trying to avoid corporate taxes by moving their headquarters overseas. U.S. drugmaker Pfizer Inc. pursued U.K.- based AstraZeneca Plc, offering as much as $117 billion before abandoning the deal, while North Chicago, Illinois-based AbbVie Inc. is chasing Dublin-based Shire Plc for $46.5 billion.
Monsanto and Syngenta held preliminary talks with advisers in the past few months about a combination before Syngenta’s management decided against negotiations, said the people, who asked not to be identified because the talks were private. Company officials also spoke informally with each other about a potential deal, two of the people said.
There were concerns about the strategic fit, antitrust issues and relocating the company to Switzerland for tax reasons, they said. The talks, which valued Syngenta at more than $40 billion, fizzled out in late May, one of the people said. An additional concern was that U.S. politicians would close the inversion loophole, thereby removing that benefit, another person said.
“The economics of the deal appear attractive at first” as it would boost earnings and lower taxes and costs, Sanford C. Bernstein analysts led by Jeremy Redenius said in a note to investors today. “However, the deal faces insurmountable strategic, antitrust, and public opinion issues in our view.”
Syngenta shares surged as much as 7% in Swiss trading today and were up 6% as of 2:27 p.m. local time. Before today, the stock had underperformed peers in the past two years and declined about 8% in 2014. Monsanto yesterday was almost unchanged in New York, for an advance this year of 4.8%.
Combining the two companies would have created the largest player in the world for both seeds and crop chemicals and a formidable competitor to German rivals Bayer AG (BAYN) and BASF SE (BAS) and Dow Chemical Co. (DOW) in the U.S. Syngenta is the world’s largest maker of crop chemicals and strongest in Europe, whereas Monsanto is the largest maker of seeds and dominates the U.S. market for genetically modified crops like corn (CBOT:ZCN14) and soybeans (CBOT:ZSN14).
“Investors would love it, it would create by far the biggest agricultural technology company in the world,” said Patrick Rafaisz, an analyst at Bank Vontobel AG, adding that it would be a surprise if they pulled off such a transaction.
“We are not in discussions on this particular matter,” Lee Quarles, a spokesman for Monsanto, said in an e-mail without elaborating. Paul Barrett, a spokesman for Syngenta, said it’s “our standard practice not to comment on market rumours, which are commonplace in the financial markets particularly at present.”
Market speculation about further consolidation in the agrochemical market has always surrounded the leading players in the industry, including Bayer’s CropScience, Dow Chemical and DuPont Co. (DD)’s Pioneer. Informal talks have been held on numerous occasions and Syngenta explored its strategic options prior to the financial crisis, according to two people.